Most Common Follies of First-Time Founders
So much has to go right for a startup to survive and thrive, it’s wise to know the most common, avoidable mistakes, made by first-time founders. Many first-time founders don’t know what they don’t know. Others are told, but they just don’t want to hear it and fumble. They lack the good sense needed to build a product people will buy, and to launch and grow a successful business.
I see these follies with many of the startups I mentor. I have suffered some of these follies in my own startups. Ignore them at your own peril.
1. Thinking the idea is so good, everyone will want to steal it.
It is human nature to want to keep secret a thing that promises great fortune to the possessor, yet can be so easily taken by others if revealed. First-time founders think like gold miners who have discovered a new vein and must mine it before others find out about it. The reality is ideas are like gold dust in a big windstorm. They cannot be concealed, collected or controlled. They glitter but have no monetary value.
Most ideas are half baked and missing most of the ingredients to make something edible. Ideas must be refined and seasoned to taste by those they are being cooked for. Most ideas evolve into something quite different than what they were originally conceived to be. The founders set out to make a cake and end up with cookies, because paying customers would rather eat cookies than cake and they buy a lot more of them.
The value of an idea is created from bringing it to life with lots of input from those who will buy the finished product. To create this value a founder should speak with as many people who will listen.
Trust me, no one wants to steal your idea. Half the people you tell won’t “get it” or think it is stupid. The other half will be so busy gazing at their own gold dust storm, or trying to bake their own cake, they won’t give your idea a second thought. In fact, you will need to beg them to take a serious look at it and give honest feedback.
For more on this subject, see my post, What’s the Risk Someone Will Steal Your Startup Idea?
2. Wasting time trying to raise money from investors for an idea or basic prototype.
Classic rookie mistake. Newsflash: no one is going to give you money to make a product, or to do the work necessary to find out if people will buy it if you do make it. The possible exception is your mother, or rich aunt. Do not waste one minute of your precious time chasing investors until you have a product people are using. Better yet, wait until you have sales and revenue is growing month-over-month.
So how do you make a product and get customers when you have no money? Borrow the money from friends and family. Mortgage your house, sell your car, or take an advance on your credit cards. Convince or cajole people or co-founders who can help you make it and get the first customers, in exchange for equity in the venture. There are all kinds of ways to do it. It’s on you to create a real product and validate the market for it. That’s what makes a true entrepreneur.
3. No skin in the game. No real passion. No staying power. Chasing shiny objects.
People are not going to beat a path to your door. No one is going to believe in it or want to help unless you are “all in”. Don’t be a dabbler. Don’t be a wannapreneur. Don’t be flaky or distracted. Don’t chase every new shiny object dangled in front of you. I see this in many first-time founders. They thrash around endlessly, accomplishing almost nothing. Their heart really isn’t in it. They give up easily.
Crystalize the vision, clarify the “real” opportunity, research the hell out of it, then MAKE something people actually want. Put everything you have into it. Work it every day. Love it every minute even when it is failing. Serendipity will happen. The right path will make itself known if you keep at it; keep learning and evolving.
4. Failure to research competitive solutions or substitutes.
Nine times out of ten when a first-time founder pitches an idea to me, I check the app store and do a quick Google search and find a half dozen very similar solutions, or substitutes. When I ask them about these other solutions, they usually say they did not know about them, or they trivialize them. Acute laziness.
Blind faith in an idea with no thorough understanding of how the intended customer is currently solving the problem or meeting the need, is pure folly. You must know intimately the dragons you will need to slay. What their weaknesses and shortcomings are. Where they are vulnerable. How you will attack them and capture their customers.
5. No core expertise or co-founder to build the product; no specification.
This is perhaps the number 1 killer of startups. The founder has a good idea. He or she does the research and validates the market need. The founder sees a way to serve the market in a way that no one else is serving or is serving poorly. But alas, the founder does not have the skills to make the product.
These founders are adrift in a vast sea with no paddle and no navigation charts. They have no programming skills. They don’t fully understand the science. They are ignorant of the technologies required to make and market the product. They don’t know how the industry works, what the sales cycle is, or how the buying decisions are made. Worse yet, they don’t have a detailed specification to give to one who does have the skills to make the product.
Startup Folly #5: trying to outsource to freelancers to build something with no blueprint, and no knowledge about how to manage the freelancer’s deliverables. Ancillary product development or support can be outsourced. Core product development should be in-house. If not in-house, it must be done by a trusted party with a detailed specification.
Non-technical founders would be well-served to find a capable and enthusiastic technical co-founder before wasting a lot of time on the venture. If you don’t have the expertise to build the product yourself, or lack the knowledge required to find and manage someone who can, you are wasting your time!
6. Not incorporating and securing IP protections.
This is an easy fix, but often comes later than it should. I continue to be surprised by how many first-time founders are six months or more into their venture and have not incorporated. The company has a name. A designer created the logo. One of the co-founders wrote a mini-business plan and made a deck. Another co-founder wrote some code or built a basic prototype. Who owns this intellectual property that has been created? No one. Everyone.
The chief assets of a startup are its intellectual property: name, logo, designs, drawings, specifications, code, plans, 3-D printed device, user feedback, collateral, etc., etc. This IP must be embodied within a legal entity that enjoys protections under the law. All IP created by the founders and others who have worked on it must be properly assigned to the legal entity. Otherwise, the startup is worthless or severely devalued because its work product is walking around with people who can do whatever they want with it.
Incorporate. Have all parties sign work-for-hire agreements and assign their work product to the entity. File a fictious name with the state. File trademarks, patents and copyrights in the name of the entity as soon as you have decided to go forward with the idea and make the product.
7. Giving co-founders and contractors equity without vesting.
Categorize this one under “friendship follies” along side founder follies. Three friends start a company. They each get equal shares. One puts in most of the money. One does most of the work. One walks away, enticed by shinier objects, or because she has a falling out with the other two. What’s left? A mess that usually needs to be cleaned up by lawyers. It gets ugly. Happens all the time. Many startups implode as a result. No more friendship. No more startup.
The same scenario plays out with contractors given stock in lieu of cash compensation. Only they don’t perform, or what they deliver is subpar or not what was expected. Fights ensue. Arguments over who owns the IP. Back to the lawyers.
The founders should get a small but equal number of shares upfront to kick things off. The vast majority of authorized but non-issued shares sit in reserve. Founders get more shares by vesting them over 2-3 years. Vesting is based on what they contribute, pre-agreed milestones and other deliverables. Being committed. Being fully engaged. If they don’t deliver, they don’t vest.
Whenever founders have an equal number of voting shares, at least one tie-breaker voting share should be held by a non-founder – an advisor or investor. Founders should sign a Buy-Sell Agreement that stipulates what happens when a founder leaves, and/or the other founders want to buy him out.
8. No market, or poorly defined market.
You would think no one would be crazy enough to start a company and build a product for which there is no market…or an anemic market, or a dying market. Some are banking on a market that won’t materialize for another 10 years. Only the big boys can do that. This is a very common folly. The founder spends a lot of time to build a product because it’s cool, or because he wants one. No one else wants one, or if they do want one, won’t spend money for it.
Some startups can name a sizeable market but cannot articulate where they will play in that market. They don’t really know the target market – the demographics, geographics and psychographics of their most likely buyers. As a result, they try to be all things to all people in the market and end up being nothing to all of them.
9. Unremarkable or unscalable value proposition.
I would have to put this as startup killer #2, behind having no core expertise. Too many first-time founders work on ideas that are quite frankly, blah. Yawn. When asked why anyone would buy it over alternative solutions, they explain their solution is a little bit cheaper, or incrementally better. They have no compelling, remarkable, or sustainable advantage. They are making a “me-too” product, destined to be lost in a sea of me-too products.
Investors apply the 10X rule to startups. The product or service must be ten times better than other solutions on the market. It must also have the ability to scale quickly. Founders who provide services, for example, don’t scale. They sell time for a living. They have to sleep. Investors like products and services that never sleep; that make money around the clock.
The lack of scalability is not a showstopper for lifestyle businesses, but even a localized lifestyle business should offer a superior value proposition to be worth doing.
10. Trying to boil the ocean.
With big ideas comes the temptation to go big immediately. This usually entails the need to raise big money. These are long-shot propositions. If your venture requires someone to invest $50M to make the product and see the first dollar, you should rethink it. A first-time founder has a better chance of winning the lottery. Scale the product way back. Break it down into small, doable stages.
An offshoot of this folly is over-engineering the product, or trying to build the end-all, be-all platform or user experience for the first version. When first-time founders with big ideas fail, it’s usually because they tried to do too much. Start small. Get a foothold then expand on it. Resist the temptation to jump too far ahead. Get to market ASAP with MVP, then innovate, iterate and optimize as fast as humanly possible.
11. No sense of urgency; no accountability.
Have you ever met someone who is working on a startup and when you see him several months later, he is essentially in the same place? No product. No customers. Still working on it.
I see this a lot. This is probably because the founder is also suffering from Folly #3 or #5 but doesn’t know it.
Speed is one of the few weapons a startup has. Not moving quickly is an early warning sign that the startup will likely fail (or has already failed).
The only way to make it as an entrepreneur is to have a “sprint mentality”. Meaningful and measurable milestones should be set each month. This is especially true of founders who have co-founders and other team members. Not holding yourself and everyone else accountable to the weekly tasks needed to achieve the milestones is gross incompetence…sheer folly. You might as well just call it a hobby, not a business.
12. No peer group; no community of like-minded and connected people.
This folly is counter-intuitive to most first-time founders. They believe in the lone-wolf myth. Entrepreneurs don’t flock, they have been told, they soar. Who needs a peer group? Some first-time founders think they are their own best counsel. Plus, other entrepreneurs might want to steal their ideas! See Folly #1.
In fact, a 2019 study by the SBA found that entrepreneurs who join a peer group, or go through an accelerator, are more likely to raise capital, attract employees and advisors, than those who do not. They are called “accelerators” for a reason. When you join one, you become part of the local eco-system…the entrepreneurial community. This is something seasoned entrepreneurs learned a long time ago, which is why so many successful entrepreneurs’ mentor for one or more accelerators to “give back” (Yours Truly included).
Going it alone as a first-time founder is sheer folly. You don’t have time to make and correct all the mistakes a peer group or accelerator will help you to avoid. Every founder you meet has at least 100 good connections who could be your customers, partners, investors or team members. If you have 10 founders in your peer group, that gives you immediate access to 1,000 human resources.
13. No beta customers, or the wrong beta customers.
Too many first-time founders develop their products in a vacuum. They think they know what customers want, because it’s what the founder wants. Then they get bummed out when they launch the product and no one buys it. This is what the whole `Lean Launchpad’ movement is all about.
To achieve product-market fit, you need to talk to lots of potential customers BEFORE you build. You should have beta customers lined up to test your product and provide honest feedback from Day 1. Give it away to beta customers if you must.
Building and launching a product that has not been vetted by real customers is sheer folly. A waste of precious time and money. You also need to make sure you have the right customers – those that fit the profile of your target market and are willing to pay for it when it is ready for prime time.
14. Sketchy business model.
This is not a fatal folly, but often overlooked by first-time founders. The ultimate business model might take some time to test and flesh out. That’s okay. You should at least have some high-level assumptions about how you will make money. What will it cost to make your product? What will you charge for it? How much revenue is possible over the next 3-5 years if all goes well? Is revenue recurring? What will it cost to acquire customers? Are you building a $1M a year business or a $100M a year business?
Don’t overlook expenses that can creep up on you, like shipping, taxes, tariffs, and merchant credit card processing fees. Be conservative with projections and factor at least 25% cushion for unknown expenses. Writing a basic business plan with financial assumptions and forecast is advisable.
15. Unfocused or focused on the wrong milestones and tasks.
What matters most in a startup is what gets done. After the thinking, brainstorming, researching, and planning (which are in themselves things that need to get done), rolling up your sleeves and working on the right things in the right order is what moves you forward. You need to advance the ball every week. Perfect is the enemy of good enough. Knowing how to prioritize tasks and manage your time and other’s time, is a critical skill of all successful founders. A good founder is above all else a good task master.
When meeting with a first-time founder I will often ask, “So what are you working on this week? What are the three most immediate and important things you need to do?” Most of them can not answer this question. They mumble a bunch of meaningless things that tell me they have no clue about what they should be working on.
There are two primary goals which should drive a first-time founder’s task list each week:
1. Finishing and launching a Minimum Viable Product (MVP), or
2. Getting customers and revenue.
Anything that needs to get done that does not directly advance one of these two goals should be delegated or outsourced. Alternatively, knock those other things out very quickly so you can focus substantially all of your time on the goals that matter. Time is the only thing in life that makes everyone on the planet completely equal. To win, use your time more wisely than your competitors do.
So that’s my short-list of first-time founder follies. There are a bunch of others. If you are a founder that has fallen victim to other follies, or a mentor that sees others being repeatedly made, feel free to list them in the comments.
We all get derailed by follies from time-to-time. The most accomplished entrepreneurs are no exception. They just have fewer follies and correct them quickly so that none are fatal.